ITC – Euribor, EGBs, Gilts and OTC Evening Recap: DMO considers, DMO rejects

Main Highlights:

– China narrows scope of US trade talks – BBG

– German Aug factory orders contract 0.6% m/m vs -0.3% exp

– Greece to tap 10y, UK DMO looks at and then dismisses long dated Gilt tender this week

EGBs saw another low volume trading session, with RX volumes 45% below the 10 day average. Bund yields closed around 1bp higher across the curve. Soft German factory orders (-0.6% m/m vs -0.3% exp) and geo-political risks appear to be underpinning the small bid in EGBs in the early part of the session. Downside buyer of Bund options only had a temporary negative impact (RXX9 174/173ps bot @ 25 on 9.2k). There was a 3.1k (500k/01) Bund block at 174.72 in the UK morning, which caused a temporary blip to that level but unfortunately for the buyer was also to be the peak of the contract on Monday. As US traders dribbled in, TY/RX/Gilt etc dribbled lower. European stockmarkets also dragged back a little lost ground.

Unsubstituted market talk of possible Spain 20Y linker deal, not expected this week, but could be soon contacts have said. While markets are keeping an eye out or Italy’s $3bn dual trance deal that is likely to come this week. Greece announced a 10y tap (likely Tuesday) and this helped push the 10y yield 8bp higher on Monday.

Italian bonds underperformed marginally in the afternoon. Treasury undertook a Global Investor Call on the maturities for the upcoming USD deal and a series of one-to-one calls. We heard speculation of 5y+10y, 10y+30y and even 30y plus something else. No clear consensus.

Gilts closed little changed. In the morning, the chatter was about the DMO request for feedback on a long maturity Gilt syndication later this week. However, the result of those discussions caused the DMO to announce in the afternoon that no such deal would take place. Boris Johnson won a court ruling in Scotland that attempted to bind the government to the Benn Act more stringently. Based upon the weight of headlines, Johnson is now awaiting some movement from the EU in response to his compromise and the EU is waiting for Johnson to improve his offer. UK index-linked market saw yields ~2bp higher on Monday, not helped by the 18y IL auction on Tuesday.


Bund Block – 3133 contracts at 174.72. Bought

Gilt fut #block: 1,336 G Z9 @ 134.76 at 1336BST — looks sold

Eurex basis report: Very small light flows seen so far today with most interest seen in the short BTP. Largest trades below:

E120mn of DEUTSCHLAND REP 15/02/2029 against 786 Bund futures 112k/01 1218BST

E150mn of BTPS 01/10/2023 against 3008 Short-BTP futures 57k/01 1235BST

Sstg #option: Recent flow sen going through:

L H0 99.50/62 c 1×2 ppr pays -0.75 on 2k

L H0 99.50/62/75 call ladder ppr pays 2 on 4k

L Z9 99.125 puts ppr pays 1 on 4k

USD swaps in Asia & early Europe: Very light flows seen going through SEF overnight with only what appeared to be receiving in 30Y outright and receiving in the belly of a 7Y/8Y/9Y fly trade. Swap spreads are mixed with 2Y 0.13bp tighter, 5Y 0.25bp wider and both 10Y and 30Y unchanged

Cross Currency Basis Swap – EURUSD XCCY (EUBS5 Curncy Gip5 ) has been moving rapidly since Wednesday, from -18.5 to -14.4bp. This is mostly a calming of the repo market tensions seen in US at the quarter end. The Italian USD deal announcement would have helped too.

EUR/GBP OIS closing Run:

Stress Indicators

European Close


-PM Johnson’s Spox: Ready to talk to EU to secure a deal; when asked about Friday deadline, PM has been clear on time pressures; not willing to see Northern Ireland in a different customs territory; not seeking a time limited backstop

-PM Johnson: Proposal is fair and reasonable; EU leaders can see the argument in pushing forward into substantive talks; we haven’t heard the details of any EU objection

– @jamesmatthewsky: BREAK: petition dismissed in effort to gain court order to make Boris Johnson seek Brexit extension

 @JolyonMaugham: The Judge has decided that because the Government accepts that it will send the letter and not frustrate the purpose of the Act, it is “neither necessary nor appropriate” to make orders. I expect the Inner House of the Court of Session tomorrow to hear our appeal

@nickeardleybbc: Important line from judgement in Scottish Court of Session: “There can be no doubt that the first respondent [the PM’s legal team] now accepts that he must comply with the requirements of the 2019 Act and has affirmed that he intends to do so.”

-Junior Brexit Min Duddridge: legal text of Brexit proposal will only be published when it will assist negotiations

GS: recommends long sterling vs dollar positions with a $1.30 target, cites “more favourable distribution of risks” around Brexit


-EU: to consider alternative to China’s belt and road initiative

-Spain will issue up to 5bn in T Bills tomorrow

-ECB: 51 out of 103 EZ banks in liquidity test would survive longer than 6 months under adverse shock; 4 banks wouldn’t survive 6 months if frozen out of the wholesale markets

-European Commission Document: EZ needs pre-emptive fiscal stimulus to avoid protracted period of low growth; more monetary easing now would be less effective than fiscal stimulus


-BRC: Sep Retail sales -1.7% LFL

-Barclaycard Sep UK Cons Spending: 1.6% y/y


-NY Fed: accepts $47b in o/n repo out of a max $75b

-WH Statement: confirm top US officials will welcome Chinese delegation for trade talks start Oct.10; Trump to sign US-Japan trade agreements at 3:30pm

-Fed Kashkari: he does not know by how much more the Fed should cut rates; if a recession comes, it would be appropriate to use QE; infl has not taken off because workers are still being enticed back to the workforce

-WH Econ Advisor Kudlow: concerned about mfg slowdown; don’t want to predict outcome of US-China trade talks; sees possible progress being made this wk in US-China trade talks; US is open to whatever trade delegation China brings; delisting of Chinese co. is not on the table; Lighthizer talked to his China trade counterparts this am


-Japan’s Motegi: US/Japan will sign trade agreement today in Washington; aims to put agreement into force asap; no objection to starting agreement on 1st Jan if US agrees


-US Energy Sec Perry: says he’s not stepping down(contrary to sources reports last week)

-Russian Energy Min Novak: Russia developed spare oil production capacity of around 500k bpd during OPEC + output cuts; no need for extraordinary supply measures now as Saudi Arabia quickly restored output after attacks

European Morning


-GER Aug Factory Orders: -0.6% m/m vs -0.3% cons

-EZ Oct Sentix Index: -16.8 vs -13 cons

-Greek Dep Fin: sees 2020 GDP growth of 2.8% next & a prim budget surplus of 3.5% GDP

-Spanish Radio citing acting economy minister Calvino: it’s possible Spain might cut growth estimates

-Italy’s ISTAT: It’s leading indicator in Sep points to continued weakness in economic prod

-Italy’s Confidustria: Confirm f/c of Italian GDP growth at flat this year & 0.4% next year; sees 2019 deficit/GDP ratio 1.8% & 2.8% in 2020; both f/c’s assume no increase in VAT

-Bank of Italy: Italian Sep Target 2 debt €468.02b vs €443.68b prior

-Italian Economy Min Gualtieri: 2020 GDP growth f/c of 0.6% is balanced & even cautious estimate

-Spain’s Acting Economy Min Calvino: It’s possible Spain could cut their growth f/c’s

-ECB: Current aggregate lvl of NPL’s remains elevated by international comparison; banking supervision will therefore continue its effort to address the stock of NPL’s; geopolitical uncertainties present a growing risk to global financial mkt’s & the to the economic o/l within the Euro area; the risk of an abrupt & significant repricing in financial mkt’s has increased since last year


-@Steven_Swinford: We’ll hear at noon if Court of Session decides to issue an order making Boris Johnson liable for ‘frustrating’ Benn Act


-Halifax Sep House PX: -0.4% m/m vs 0.1% cons & 1.1% 3m/y/y vs 1.6% cons


-OPEC Sec Gen Barkindo (Tass): Counting on Russia to help sooth tensions between Iran & Saudis; it’s too early for OPEC to discuss deeper oil o/p cuts despite oil price falls; OPEC+ alliance is focused on full compliance with oil cuts

-Russian Energy Min Novak: Considers mid-term oil price of $50/bbl as fair, everyone has forgotten oil at $100/bbl